Euro to US Dollar Exchange Rate Moves Away from Weekly Lows on German Business Confidence

While Ifo’s latest German business confidence data did indicate that concerns about the US-China trade war were impacting German companies, the data also generally beat expectations and as a result the Euro to US Dollar (EUR/USD) edged higher on Wednesday.

EUR/USD volatility seems to be continuing this week, as weakness in both currencies limits the chances for sustained shifts in direction.

After opening the week at the level of 1.1729 and briefly touched a low of 1.1661 on Tuesday, EUR/USD trended nearer the level of 1.1680. At the time of writing on Wednesday, EUR/USD had recovered just slightly and trended in the region of 1.1693.

Ultimately though, as investors awaited the European Central Bank (ECB) policy decision and US growth results due towards the end of the week, the Euro to US Dollar exchange rate’s movements were limited.

After weakening earlier in the week on a lack of fresh support and lasting reaction to last week’s underwhelming Eurozone inflation report, investors found the Euro a little more appealing again on Wednesday morning.

This was because, following the mixed data earlier in the week, Germany’s latest business confidence survey data beat forecasts in every major print.

Ifo’s German business climate figure slipped from 101.8 to 101.7, rather than the forecast 101.5. Current conditions unexpectedly improved from 105.2 to 105.3, and expectations only slipped from 98.5 to 98.2 rather than the forecast 98.1.

This was despite the report indicating that German businesses were already being dented by US trade protectionism and trade war fears.

According to Ifo Chief Clemens Fuest:

‘Companies were slightly more satisfied with their current business situation, but scaled back their business expectations slightly.

The German economy continues to expand, but at a slower pace.’

US Dollar (USD) Exchange Rates under Pressure

At the beginning of the week, markets were relieved by signs that the Federal Reserve would not be influenced by the criticism of US President Donald Trump, and that the bank would continue to hike US interest rates later in the year.

This caused the US Dollar to push EUR/USD lower on Monday, but the US Dollar’s strength has been limited and on Wednesday EUR/USD was edging higher again.

While the US economic outlook is strong, this week’s US data has been slightly mixed. Markit’s July PMI projections for the US, for example, showed that services had unexpectedly slowed, dragging the composite print from 56.2 to 55.9.

Investors were also less eager to buy the US Dollar following comments from economists suggesting that the currency was overvalued. The International Monetary Fund (IMF) noted as much in its latest External Sector Report.

Euro to US Dollar (EUR/USD) Forecast: European Central Bank (ECB) in Focus

Investors were also hesitant to make any big moves on the Euro to US Dollar (EUR/USD) exchange rate ahead of the key news expected in the second half of the week, including the European Central Bank’s (ECB) July policy decision.

The ECB is not expected to announce any changes to monetary policy, and the bank still expects to move towards withdrawing its quantitative easing (QE) program later in the year.

Instead, investors will be focusing on the bank’s tone regarding the Eurozone’s economic outlook, and how it may be influenced by US trade protectionism and the potential for a global trade war.

If the bank is even more cautious or dovish than expected on the Eurozone’s recent economic slowdown, or trade uncertainties, the Euro is likely to weaken in the coming sessions and EUR/USD could tumble.

Meanwhile, US Dollar investors are highly anticipating Friday’s session when US Gross Domestic Product (GDP) growth data from Q2 will be published.

US growth is forecast to have risen notably, from 2% to around 4.1% quarter-on-quarter. If these stats surprise investors, the Euro to US Dollar (EUR/USD) exchange rate could see some late week shifts in movement.